On September 14, 2018, the Pension Benefit Guaranty Corporation (PBGC) published final regulations intended to facilitate plan mergers and transfers between multiemployer pension plans under ERISA Section 4231. These regulations become effective October 15, 2018.
ERISA Section 4231, as amended by the Multiemployer Pension Reform Act of 2014 (MPRA), permits the PBGC to facilitate mergers of multiemployer pension plans and to provide financial assistance for such mergers where at least one of the participating plans is in critical and declining status. Generally, a critical and declining plan is projected to become insolvent within 15 to 20 years.
The final regulations provide guidance on permissible multiemployer pension plan mergers, and the PBGC’s role in such mergers, including
- general requirements for multiemployer pension plan mergers and transfers (including applicable definitions);
- rules and requirements (including procedural requirements) for facilitated plan mergers (mergers in which the PBGC provides financial assistance to enable the merged plan to remain solvent); and
- language clarifying that the PBGC may waive the requirement that a plan preserve accrued benefits following a merger in the event of a simultaneous benefit suspension and merger.
The final regulations largely mirror the proposed regulations that the PBGC issued on June 6, 2016. Notably, however, the final regulations do not include an expanded definition of “significantly affected plan” or revisions to existing safe harbor plan solvency tests—both of which were introduced in the proposed regulations but were the subject of critical comments. Specifically, detractors alleged that these changes would make mergers and transfers more difficult and substantially increase the burden on plan sponsors.
We have experience with the complex MPRA rules for assisting multiemployer plans in critical and declining status, and would be glad to assist with understanding how these final regulations may impact potential merger opportunities. If you have any questions or would like more information about these final regulations, please feel free to contact the authors or your Morgan Lewis contacts.