The revised procedures apply to applications submitted on or after September 1, 2017.
The Internal Revenue Service (“IRS”) issued an advance version of Rev. Proc. 2017-43 which revises the procedures for applying for suspension of benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”). The revenue procedure revises and updates the procedures previously set forth in Rev. Proc. 2016-27 to take into account the experience of the Department of Treasury in processing applications to date.
The revised procedures apply to applications submitted on or after September 1, 2017.
To date, a number of multiemployer pension plans in critical and declining status have submitted applications to the Department of Treasury and Pension Benefit Guaranty Corporation to suspend benefits or partition liabilities under the Multiemployer Pension Reform Act of 2014 (MPRA). So far, only one application to suspend benefits has been approved, but several have been rejected by the regulators or withdrawn by the plan sponsor.
The Multiemployer Plans Subcommittee of the American Academy of Actuaries has published notes from a February 2017 meeting with federal regulators to discuss lessons learned from the suspension and partition applications that had been reviewed up to that point. These notes are a valuable resource for multiemployer plan sponsors and practitioners, especially those for plans considering applying for a suspension or partition under MPRA.
From the Winter 2017 edition of the Enrolled Actuaries Report:
Academy Liaises With Federal Agencies on MPRA Applications
The Multiemployer Plans Subcommittee met in February with members of the U.S. Department of Treasury, the Pension Benefit Guaranty Corporation and the Department of Labor. The discussion focused on applications by multiemployer pension plans in critical and declining status to suspend benefits or partition liabilities, as permitted under the Multiemployer Pension Reform Act of 2014 (MPRA).
The subcommittee released notes from the meeting, highlighting discussions about actuarial assumptions, plan sponsor considerations, review process, and the possibility of informal consultation prior to a MPRA application for suspension of benefits or partition.
The discussion in this exchange was intended to provide plan sponsors and actuaries with insights about the MPRA application review process with a goal to help plan sponsors make decisions about applying and to increase the acceptance rate for those who do apply.
On December 16, 2016, the Department of the Treasury approved the application by the Iron Workers Local 17 Pension Fund to suspend benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”). This application is the first to be approved by Treasury, following denials of four other applications.
Now that the application has been approved by Treasury, the suspension must now proceed to a vote by participants and beneficiaries. The vote will be administered by Treasury.
The Iron Workers Local 17 Pension Fund first submitted its application to suspend benefits on December 23, 2015. It withdrew the original application and resubmitted a revised application on July 29, 2016. Treasury has posted the approval letter to the Fund on its webpage for MPRA applications.
Please contact your Horizon Actuarial consultant for more information on how this decision may affect your pension fund.
On September 9, 2016, Representative John Kline (R-MN), Chairman of the House Education and the Workforce Committee published a discussion draft of the Multiemployer Pension Modernization Act of 2016, a proposal to “modernize multiemployer pensions and strengthen retirement security.” The draft bill outlines a new “composite plan” design for multiemployer defined benefit pension plans.
The composite plan design was originally included as part of the Solutions Not Bailouts proposals developed by the National Coordinating Committee for Multiemployer Plans (“NCCMP”) Retirement Security Review Commission. This hybrid design combines aspects of traditional defined benefit and defined contribution plan designs – intending to spread investment risks between plan participants and sponsors, while still providing lifetime retirement income to plan participants.
The following points highlight some of the key aspects of the composite plan proposal, as outlined in the discussion draft. These points are not intended to be a comprehensive summary of the proposal, which may change in the coming weeks and months. Please contact your Horizon Actuarial consultant for more information.
Composite Plan Highlights
Legacy Plan Highlights
Again, these points provide only a high-level summary of the key provisions of the composite plan proposal. As noted above, the proposed legislation is a "discussion draft" and subject to change. Please contact your Horizon Actuarial consultant for more information.
Contact a Horizon Actuarial consultant.
Press Release (4.29.2015): “Time to Modernize Multiemployer Pension System” http://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=398799
Press Release (9.9.2016): “Kline Releases Discussion Draft to Modernize Multiemployer Pensions”
Discussion Draft: “Multiemployer Pension Modernization Act of 2016” http://edworkforce.house.gov/uploadedfiles/composite_a_xml.pdf
Questions and Answers: “A Discussion Draft to Modernize Multiemployer Pensions” http://edworkforce.house.gov/uploadedfiles/basic_q_and_as_on_a_discussion_draft.pdf
Press Release (9.14.2016): “Modernizing Multiemployer Pensions” http://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=401019
On June 6, 2016, the Pension Benefit Guaranty Corporation (“PBGC”) published a proposed rule regarding mergers and transfers involving multiemployer pension plans. On July 28, 2016, Horizon Actuarial Services, LLC submitted a comment letter in response to the proposed rule. Horizon’s comment letter can be found at regulations.gov as well as on our website here.
Horizon's comment letter covers four topics. One, it discusses additional guidance that may be needed from PBGC with respect to applications for facilitated mergers. Two, it recommends changes to the applicable solvency requirements for mergers and transfers. Three, it proposes that PBGC use its authority to approve certain mergers and transfers that would result in increased solvency for the plans involved and reduced expected losses to PBGC. Four, it encourages PBGC to work with the Department of the Treasury to issue guidance regarding mergers following a suspension of benefits.
Other organizations submitting comments on the proposed rule, which can also be found at regulations.gov, include:
On June 6, 2016, the Pension Benefit Guaranty Corporation (“PBGC”) published a proposed rule regarding mergers and transfers involving multiemployer pension plans. The proposed rule can be found on the Federal Register.
The proposed rule provides guidance for requesting a facilitated merger under the Multiemployer Pension Reform Act of 2014 (“MPRA”), including a request for financial assistance from PBGC. The proposed rule also updates the existing regulation regarding mergers and transfers between multiemployer plans under section 4321 of ERISA.
Comments on the proposed rule may be submitted via www.regulations.gov or at firstname.lastname@example.org. Comments must be submitted within 60 days of the publication of the proposed rule, in other words, no later than August 5, 2016.
Update: On July 28, 2016, Horizon Actuarial Services, LLC submitted a comment on the proposed rule. More information can be found here.
On Friday, May 6, 2016, the Department of Treasury (“Treasury”) issued a decision rejecting the application to suspend benefits submitted by the Central States, Southeast, and Southwest Areas Pension Fund (“Central States”).
The Central States application, comments on the application, and the Treasury decision can all be found on the Treasury website, at www.treasury.gov/mpra. Applications for suspensions of benefits submitted by other plans can also be found on the website.
The following summary of the Treasury decision on Central States is intended for general informational use only. It does not represent legal, tax, or other professional advice. Please contact your Horizon Actuarial consultant for more information.
Under the Multiemployer Pension Reform Act of 2014 (“MPRA”), a plan is in “critical and declining” status if it is projected to go insolvent (in other words, run out of money) in the next 15 to 20 years. Plans in critical and declining status may submit an application to Treasury to suspend benefits. A benefit suspension is either a temporary or permanent reduction in benefits payable to plan participants and beneficiaries. While certain classes of participants are protected due to age or disability, suspensions may apply to benefits that were previously protected, including accrued benefits and benefits already in payment status.
MPRA requires that the proposed suspensions be sufficient to enable the plan to avoid insolvency. The suspensions must also not materially exceed the level needed to avoid insolvency, and they must be distributed equitably across the participant population.
Treasury released proposed and temporary regulations on MPRA benefit suspensions in June 2015. At that time, Treasury announced it had appointed Ken Feinberg to be Special Master responsible for overseeing the implementation of MPRA. In early 2016, Treasury issued a few sets of final regulations, with the latest regulations coming on April 26 and May 5.
Central States was the first such plan to submit an application, which it did on September 25, 2016. In conjunction with its application, Central States launched a special “Rescue Plan” website, www.cspensionrescue.com, which describes the proposed suspensions and provides updates on the process.
Under MPRA, Treasury had 225 days to review the application and render a decision. As noted above, Treasury issued its decision on May 6, 2016 after reviewing both the Central States application and nearly 3,000 comments on the application submitted by interested parties. This was the first decision from Treasury on an application to suspend benefits under MPRA.
As of the date of this post, we are aware of two letters from Treasury regarding its decision on the Central States application. The first letter is from Special Master Feinberg to Central States, detailing the reasons for the rejection. The second letter is from Secretary Jacob Lew to Congressional leaders reporting the decision and outlining issues that emerged during the review process.
The Feinberg decision letter to Central States listed four factors contributing to its rejection of the application, as described below. Trustees of plans in critical and declining status considering a suspension of benefits should consider these factors when preparing their applications.
The first two factors in the decision letter were actuarial assumptions that Treasury determined to be not reasonable, and as a result would cause Central States to fail to demonstrate that the proposed suspensions are sufficient to avoid insolvency. The third and fourth factors related to the design and notice requirements, respectively, of the proposed suspensions.
It should be noted that Central States has posted an update regarding the Treasury decision on its Rescue Plan website.
The letter from Secretary Lew reported to Congress the decision to reject the Central States application. The letter stated that without congressional action, the Central States Pension Fund will likely become insolvent within 10 years and that the Pension Benefit Guaranty Corporation (PBGC) multiemployer program may also be insolvent by that time.
The letter to Congress also outlined issues that emerged during Treasury’s review of the Central States application. For example, Treasury noted that some commenters suggested that smaller benefit reductions should be allowed before committing to deeper cuts, which is not permitted under MPRA. Treasury also called into question the provision under MPRA that imposes maximum benefit suspensions on Central States “orphan” participants as well as the requirement that Treasury override a vote by participants rejecting a proposed suspension if the plan is deemed to be “systemically important.”
On April 28, 2016, the Department of Treasury (“Treasury”) released final regulations on the implementation of certain aspects of the Multiemployer Pension Reform Act of 2014 (“MPRA”), specifically the application process for a proposed suspension of benefits by plans in critical and declining status.
The final regulations and a summary of the key provisions can be found on the Federal Register, and they replace the temporary regulations published in June of 2015. The revenue procedure accompanying the final regulations, Rev. Proc 2016-27, updates the procedures set forth in Rev. Proc 2015-34.
Treasury also published two sets of regulations related to the suspension of benefits under a special rule believed to apply only to the Central States, Southeast, and Southwest Areas Pension Fund. The first set of regulations was published on the Federal Register on February 11, 2016, and the second was published on May 5, 2016.
On June 17, 2015, the Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC) issued guidance on the Multiemployer Pension Reform Act of 2014 (MPRA), which was signed into law last December.
The IRS’s guidance comes in the form of a revenue procedure regarding the application and approval process for benefit suspensions under MPRA. The IRS has posted the revenue procedure on its website. The revenue procedure was issued in conjunction with temporary and proposed regulations providing guidance on benefit suspensions.
The PBGC’s guidance comes in the form of an interim final regulation on the partition rules under MPRA. The PBGC has posted a press release regarding the regulation on its website, which includes a link to the regulation itself. The regulation provides guidance on the process of applying for a partition, including information required from the plan sponsor as part of the application.
On December 16, 2014, President Obama signed the Multiemployer Pension Reform Act of 2014 into law. The Act was introduced by Representatives John Kline (R-MN) and George Miller (D-CA) on December 10 as part of the omnibus government funding bill, which Congress passed on December 13.
The following is a high-level summary of the key components of the Act.
This summary is intended for general informational use only. It does not represent legal, tax, or other professional advice. Please contact your Horizon Actuarial consultant for more information on how the Act may affect your multiemployer pension fund.
1. PPA modifications and repeal of sunset.
The Act makes permanent the funding rules affecting multiemployer pension plans under the Pension Protection Act of 2006 (“PPA”). Certain provisions of the PPA had been scheduled to sunset on December 31, 2014.
The Act also modifies certain provisions of the PPA, effective beginning in 2015. For example, a plan approaching critical status may elect to enter critical status early, thus bypassing endangered status. The ambiguity regarding emergence from critical status when Internal Revenue Code section 431(d) amortization extensions apply (the so-called “revolving door”) is eliminated. A plan will remain in the “green zone” if it would have otherwise entered endangered status, but requires no corrective action under a funding improvement plan. The Act includes other technical corrections and modifications, as well, including the elimination of the reorganization rules.
Additionally, the Act extends guarantees by the Pension Benefit Guaranty Corporation (“PBGC”) to pre-retirement survivor annuities. It also expands required disclosures for multiemployer pension plans under section 101(k) of ERISA.
2. Mergers and partitions.
The Act gives the PBGC new authority to facilitate plan mergers and grant partitions, to the extent that doing so would strengthen the position of the PBGC’s multiemployer program. The new rules apply only to situations involving plans that are in critical status and approaching insolvency.
3. PBGC premiums.
The Act increases PBGC flat rate premiums for multiemployer pension plans to $26 per covered participant and beneficiary, effective in 2015. The flat rate premium for future years will be automatically increased with inflation. For reference, the flat rate premium was $12 per covered participant and beneficiary in 2014, and it was scheduled to increase to $13 in 2015.
4. Benefit suspensions for deeply troubled plans.
The Act gives trustees of a multiemployer pension plan that is in critical status and approaching insolvency (in “critical and declining status”) the authority to suspend benefits that were previously protected under law, if doing so would enable the plan to avoid insolvency. The Act defines the suspension of benefits as the temporary or permanent reduction of any current or future payment owed by the plan to any participant or beneficiary. The trustees must determine annually that the benefit suspensions remain necessary to avoid insolvency, after all other reasonable measures to avoid insolvency have been taken.
There are several limitations on the benefit suspensions. For example, suspensions cannot reduce benefits below 110% of the levels guaranteed by the PBGC (a monthly benefit of up to $35.75 per year of service). Retirees who are age 80 or older at the time the suspensions go into effect are protected, as are disabled retirees. (Retirees age 75 to 79 are partially protected.) The suspensions must not materially exceed the level needed to avoid insolvency, and they must be spread equitably across the participant population. Trustees of large plans (with at least 10,000 participants) must also designate a retired plan participant to advocate for the interests of retired and deferred vested participants through the suspension process.
The suspensions are subject to approval by the Secretary of Treasury and ratification by a vote of plan participants and beneficiaries. If the suspensions are rejected by the participant vote, and the plan represents more than $1 billion in potential financial assistance payments from the PBGC (a “systemically important” plan), the Secretary of Treasury has the authority to override the vote and implement the suspensions. The Secretary of Treasury will act in consultation with the PBGC and Secretary of Labor, and it will issue regulations within 180 days of the enactment of the Act.
There are certain disclosure requirements that must precede any benefit suspensions. For example, before the plan can submit its application for approval to the Secretary of Treasury, it must send a detailed notice to interested parties, including an “individualized estimate” of the effect of the proposed suspensions on each participant or beneficiary. In addition, the plan’s application to the Secretary of Treasury will be posted online for public inspection and comment.
5. Changes to withdrawal liability rules.
The Act also changes certain rules for determining employer withdrawal liability. For example, certain contribution increases required under a funding improvement plan or rehabilitation plan (for plans in endangered status or critical status, respectively) are disregarded for purposes of allocating unfunded vested benefits to participating employers and when calculating an employer’s statutory payment schedule. Employer surcharges (for plans in critical status only) are also disregarded.
Additionally, the effect of any benefit suspensions (as described above) are disregarded for purposes of determining withdrawal liability, for a period of ten years following the effective date of the suspensions.
Lastly, for plans that engage in a partition (as described above), for the first ten years following the partition, withdrawal liability will be determined with respect to both the original plan that was partitioned as well as the new plan that was created by the partition. After ten years, withdrawal liability will be determined with respect to the original plan only.