Employers in multiemployer pension plans should be aware that the Pension Benefit Guaranty Corporation (PBGC) is proposing a new regulation to provide interest rate assumptions in determining an employer’s withdrawal liability to a multiemployer pension plan. The announcement came from the PBGC in an official news release dated October 13, 2022.
Currently, the Employee Retirement Income Security Act of 1974 (ERISA) allows for an employer that withdraws from an underfunded multiemployer plan to owe withdrawal liability to the plan. According to the PBGC release, “The amount owed represents the withdrawn employer’s share of the amount by which the present value of the plan’s nonforfeitable benefits exceed the value of the plan’s assets.” The present value of the plan’s nonforfeitable benefits are determined by the plan’s actuary.
Proposed New Rule
Under the proposed rule, the PBGC would be clarifying that it is “reasonable to base the interest assumption used to calculate an employer’s withdrawal liability on the market price of purchasing annuities from private insurers.” For example, the use of settlement interest rates prescribed by the PBGC under Section 4044 of ERISA (4044 rates). Specifically, in order to determine the withdrawal liability, the proposed rule would allow the use of 4044 rates as standalone assumptions or combined with funding interest rate assumptions.
Currently, actuarial assumptions are used to determine withdrawal liability in a multiemployer plan that terminates by mass withdrawal, however, up until the present, the PBGC had not used its statutory authority under ERISA’s Section 4213 (a)(2) to issue regulations which would set forth the assumptions that an ongoing plan could use to calculate an employer’s withdrawal liability.
Comments on Proposed Rule to Be Submitted by November 14, 2022
According to PBGC Director Gordon Hartogensis, “This proposed rule provides the clarity that many multiemployer plans need to determine an employer’s withdrawal liability and protect the retirement security of the workers and retirees covered by the plan. We look forward to receiving comments on the proposal from the public and the multiemployer pension community.”
The proposed rule was published in the Federal Register on October 14, 2022, and comments may be submitted by November 14, 2022.