The Building Tradesman Newspaper

Friday, January 09, 2015

Congress gives pension plans new survival skills

By The Building Tradesman

By Benjamin A. Schepis, Esq.
Novara Tesija, P.L.L.C.

Congress recently passed pension legislation as part of its last minute budgeting process. The legislation – called the Multiemployer Pension Reform Act of 2014 (MPRA) – does many things, but most importantly, it allows certain multiemployer pension plans (called “critical and declining status” plans) to reduce benefits of participants and beneficiaries, including retirees, in pay status.  This legislation is an effort to protect not only aging pension plans, but also the Pension Benefit Guarantee Corporation (PBGC), which stands behind these plans. Please note that this is just a preliminary summary of the legislation.

The Pension Reform Act makes a number of changes to rules affecting multiemployer pension plans.  Among other things, it:

  • Allows certain plans to choose to be in critical status if the plan actuary projects it will fall into critical status in the next 5 years.
  • Clarifies the rules for plans to emerge from critical status.
  • Clarifies rules for what endangered and critical plans can do during funding improvement and rehabilitation adoption periods, respectively.
  • Provides rules imposing a default schedule when the bargaining parties fail to adopt a funding improvement or rehabilitation plan (including what happens if the initial plan is adopted, but a subsequent one is not).
  • Repeals the reorganization rules for multiemployer plans.
  • Modifies the insolvency rules to apply to plans in critical status.
  • Disregards certain contribution increases for withdrawal liability calculations.
  • Revises and updates the disclosure requirements for multiemployer plans to participants, beneficiaries, and contributing employers.
  • Provides PBGC assistance for merging plans.
  • Provides rules for partitioning critical and declining status multiemployer plans (i.e., it allows a plan to “spin off” some of its liabilities to a successor plan).
  • Increases the premium multiemployer plans pay to the PBGC from $13 to $26 per individual, and provides for annual increases.

The biggest change however, are provisions permitting certain plans to reduce benefits in pay status (called “suspensions” in the legislation) that were previously protected under the Employee Retirement Income Security Act (ERISA). The following Q&A’s address some of the most important points of the MPRA:

Q: What does the Multiemployer Pension Reform Act do?

A: It makes a number of changes to ERISA and the Internal Revenue Code related to multiemployer plans.  Among other things, it clarifies rules related to critical and endangered plan status, provides PBGC assistance for merging plans, and creates rules for “spinning off” liabilities of multiemployer plans into another, successor plan (leaving the original plan healthier).

Q: What about provisions allowing benefit reductions to retirees or other participants and beneficiaries in pay status?

A: Certain very troubled plans can now reduce (or “suspend”) benefits in pay status.  To do so, a plan must be in “critical and declining” status. This means it is in PPA critical status and is expected to go insolvent in the next 14 years (or 19 years, in some cases).  If a plan is in critical and declining status, then the plan, in consultation with its actuary, may request that the DOL, IRS, and PBGC sign off on its proposed suspension.

Q: What protections would there be for participants and beneficiaries?

A: There are a number of protections included in the legislation:

  • Only deeply troubled “critical and declining” status plans will be eligible to suspend benefits at all (i.e., only those pension plans that are projected to go insolvent in 14, or 19 years, determined under a separate test).
  • Even if the plan decides to suspend benefits, the DOL, IRS, and PBGC must sign off on the suspension.
  • Plans with over 10,000 participants must appoint a “retiree advocate” to promote the interests of the plan’s retirees.
  • Plan participants and beneficiaries will vote on the suspensions in an election overseen by the government.  The suspensions will not go into effect if a majority of participants and beneficiaries vote against it (unless the government finds that the plan is essentially “too big to fail”).
  • There are limits to cuts for older retires (75 and above) and those receiving disability benefits.
  • There are other protections in place and a wide variety of factors plans must consider when deciding whether to suspend benefits.

Q: What’s next?

A: The Multiemployer Pension Reform Act provides that proposed regulations will be issued in the future.