PBGC Issues Technical Update on Withdrawal Liability

On July 15, 2010, the PBGC released Technical Update 10-3: Simplified Methods for Applying the Requirement to Disregard Benefit Reductions in Determining Withdrawal Liability – Multiemployer Pension Plans – Pension Protection Act of 2006 (PPA).

Under PPA, the Trustees of a multiemployer plan that is certified to be in critical status must adopt a rehabilitation plan to meet certain funding benchmarks over time.  The plan must provide the bargaining parties with one or more schedules reflecting reductions in benefits and increases in contributions in order to satisfy the statutory requirements of the rehabilitation plan.  These schedules may include reductions to “adjustable benefits” (e.g., already-accrued early retirement subsidies, certain payment options, etc.) that the Trustees deem appropriate.

PPA also states that the reduction or removal of any adjustable benefits must be disregarded for purposes of determining employer withdrawal liability.

This Technical Update from the PBGC provides guidance on a simplified methodology for satisfying this statutory requirement.  Under the simplified methodology, the initial change in the unfunded vested benefits due to the removal of adjustable benefits would be amortized over 15 years and allocated to employers pro-rata based on contributions over the last 5 plan years.

Please note that this guidance is informal and could be superseded by future technical releases.