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So far, only one application to suspend benefits has been approved, but several have been rejected by the regulators or withdrawn by the plan sponsor.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.
 
General Highlights

• Optional plan design.  There is no requirement for the trustees of a multiemployer plan to adopt the composite plan design; it is purely optional.  In fact, there are restrictions on which plans may adopt the composite plan feature.  For example, plans currently in critical status or plans projected to be in critical status in the following 5 years are not eligible.
• Two plan components.  If the composite plan feature is added to an existing multiemployer plan, there will be two components to the plan: the “composite plan” and the “legacy plan.”  When benefit accruals cease under the legacy plan (past service), they begin under the composite plan (future service).  Separate funding rules and contribution requirements apply to the two different components.

 
Composite Plan Highlights 

• No unfunded liability.  By definition, the composite plan has no unfunded liability.  As a result, there is no employer withdrawal liability associated with the composite plan component.  There is also no benefit guaranteed by the Pension Benefit Guaranty Corporation (“PBGC”) and no premium requirement. 
• Annual certification.  The composite plan actuary must issue an annual certification of the current and projected funded ratios for the composite plan.  If the projected funded ratio in 15 years is less than 120%, the trustees of the composite plan must adopt a “realignment program.”  The certification is due 120 days into the plan year. 
• Realignment program.  The realignment program consists of reasonable measures designed to return the projected funded ratio to at least 120% in 15 years (other tests may apply).  The measures consist of proposed increases to employer contribution rates and reductions in participant benefits and are prioritized into three tiers:  
  1. First tier measures includes proposed contribution rate increases, reductions in the rate of future benefit accruals, and the reduction or elimination of “adjustable” or other ancillary benefits.  Future benefit accruals cannot be reduced below the equivalent of 1% of contributions.  As under current law, adjustable benefits include early retirement benefits and other subsidies not already in pay status.
  2. Second tier measures include reductions in accrued benefits not already in pay status, as well as reductions to non-core benefits in pay status.  For this purpose, “core” benefits include accrued benefits payable at normal retirement age.  “Non-core” benefits include early retirement benefits, subsidies, and post-retirement increases.
  3. Third tier measures include further reductions to the rate of future accruals (below the equivalent of 1% of contributions if needed) and reductions in core benefits already in pay status.  Any reductions to in-pay core benefits must be distributed equitably, considering the same criteria as for suspensions of benefits for plans in critical and declining status.  Trustees should incorporate third tier measures into the realignment program only after all reasonable measures in the first two tiers have been exhausted. 
• Restrictions on benefit increases.  The composite plan design imposes restrictions on plan amendments that increase benefits.  For example, for an amendment that increases plan liabilities by no more than 3%, the resulting projected funded ratio must be at least 120%.  If the amendment increases plan liabilities by more than 3%, the resulting projected funded ratio must be at least 140%.  Additional restrictions apply to restoring core benefits that were previously reduced under a realignment program.

 
Legacy Plan Highlights

• Existing rules still apply.  The legacy plan remains a defined benefit plan, and in general, existing rules continue to apply.  For example, the legacy plan actuary will still issue annual certifications as to whether the legacy plan is in endangered or critical status. Withdrawal liability and PBGC premiums still apply, as well.  However, legacy plan withdrawal liability will be eliminated once certain full-funding thresholds are met. 
• Transition contributions.  Contributions to the legacy plan must be sufficient to cover the cost of benefit accruals (if any) and allocable administrative expenses, as well as to pay down the unfunded liability over time.  The initial unfunded liability must be paid down over 25 years, and any subsequent changes in the unfunded liability must be paid down over 15 years.  These contributions continue until the legacy plan liability is fully funded. 

 
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.
 
Related links:
 
Contact a Horizon Actuarial consultant.
contactus@horizonactuarial.com
 
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”
http://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=400989
 
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:

• The American Academy of Actuaries
  
• The Association of Food and Dairy Retailers, Wholesalers and Distributors (prepared by Venable, LLP)
  
• Bimbo Bakeries USA
  
• First Actuarial Consulting, Inc.
  
• The International Brotherhood of Teamsters
  
• The Kroger Co.
  
• The National Coordinating Committee of Multiemployer Plans ("NCCMP")
  
• Segal Consulting
  
• The US Chamber of Commerce

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 reg.comments@pbgc.gov.  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.

Background

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.

Treasury Decision

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.
​

1. Investment return assumption.  Treasury stated that the investment return assumption used by Central States was not reasonable.  Both in this letter and in its final regulations, Treasury noted that it expects the investment return assumption to consider timing of plan cash flows and to give appropriate weight to near-term expected returns, which are generally expected to be lower than over the long term.  In its decision letter, Treasury referenced the 2015 Survey of Capital Market Assumptions published by Horizon Actuarial.
2. Entry age assumption.  Treasury stated that the assumption used by Central States in projecting new active participants in future years was not reasonable.  The assumption included a single hire age for all new active participants, which Treasury determined did not adequately reflect recent demographic experience.
3. Equitable distribution of suspensions.  Treasury stated the suspensions proposed by Central States were not equitably distributed, because different levels of suspensions applied to participants currently or formerly employed by United Parcel Service, Inc. (UPS) depending on whether the participant is covered under a separate company plan sponsored by UPS.  It is important to note that this issue applies to a special rule under MPRA, which is believed to apply only to Central States.
4. Understandable notices.  Under MPRA, a plan that applies to suspend benefits must send notices to participants describing the proposed suspensions and their impact on each individual’s benefits.  MPRA requires that the notices must be written so as to be understood by the average plan participant.  In its decision letter, Treasury stated that the notices sent by Central States did not meet this requirement, citing overly technical and wordy language.

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.

On May 2, 2013, Bloomberg Government and the Quality Construction Alliance hosted a discussion on the state of private sector pension plans in the U.S., with a special focus on multiemployer defined benefit pension plans.

Speakers included:
​
* Josh Gotbaum: Director of the Pension Benefit Guaranty Corporation (PBGC)
* Randy DeFrehn: Executive Director of the National Coordinating Committee for Multiemployer Plans (NCCMP)
* Cary Franklin: Actuary and Managing Consultant of Horizon Actuarial Services, LLC
* Earl Pomeroy: Former U.S. Representative and Attorney at Alston & Bird, LLP
* Norm Stein: Professor at Drexel Law School and Former Counsel to the American Association of Retired Persons (AARP)

Mr. Gotbaum was the first speaker, discussing the importance of defined benefit plans and issues facing the PBGC.  Following Mr. Gotbaum was a panel discussion including Mr. DeFrehn, Mr. Franklin, Mr. Pomeroy, and Mr. Stein.  The panel’s discussion focused on issues facing multiemployer defined benefit pension plans and the NCCMP’s recent report – Solutions Not Bailouts – which offers a set of proposals to preserve the current multiemployer pension system, remediate the minority of deeply troubled plans, and offer innovative ideas for the future.

The video can be streamed from the C-SPAN website via the link below.

http://www.c-spanvideo.org/event/218127